IGI Logo

JSPL reported lower-than-expected consol Adj EBITDA of Rs22.1bn (CentrumE: Rs27.1bn), down 18% QoQ primarily due to sharp fall in realisation by ~10% QoQ. Besides, inventory loss recorded on liquidating high cost inventory which partially offset benefit from fall in coking coal cost by USD70/t. As a result, adjusted standalone EBITDA/t stood at Rs11,164 (CentrumE: Rs13,584/t), down Rs3,320/t QoQ and Consol Adj EBITDA/t stood at Rs11,010, down Rs3,686/t QoQ. The realisation has increased by 2-3% QoQ but coking coal cost has also moved up by USD50-60/t for Q3FY24. The capex project cost is now estimated at Rs310bn and Rs75-100bn/year capex cost. It is likely to complete by FY26-end. We expect ramp up to gradually start from FY26 onwards. Hence, we cut our estimate for volumes by 6%/15% and EBITDA by 30%/24% for FY24/25 respectively. We rollover to mid-FY26E and value at 5.5x EV/EBITDA, arriving at target price of Rs662 (Earlier: Rs764). We downgrade to ADD (Earlier: BUY)

EBITDA down 12% due to lower realisation

Consolidated revenue decreased by 3% QoQ to Rs122.5bn on account of sharp decline in steel prices. Sales volume stood higher at 2.01mt up 9% QoQ. While realisation/t decline by Rs 6797 (10%). Besides, inventory loss recorded on liquidating high cost inventory which partially offset benefit from fall in coking coal cost by USD70/t. As a result, consolidated adj EBITDA decreased by 18% QoQ to Rs22.1bn. Exports stood at 13% of total sales (vs 10% in Q1FY24). JSPL has commissioned 6mtpa pellet plant and start production from December 2023 and also gradually ramp up coal production from Gare Palma IV/6.

Net debt/EBITDA at 0.77x

During H1FY24, it spent Rs36.5mn and guided growth capex of Rs75-100bn. JSPL to commission additional 6mtpa pellet capacity by FY26. The 5.5mtpa HSM capacity is delayed by a quarter and is expected to commission by Q3FY24 end. While BF-BoF, slurry pipeline and another 6mtpa pellet capacity to commission by FY25 end.

Downgrade to ADD rating with target price of Rs662

The delay in capex project completion has derailed volume ramp up expectation. As a result, sales volume growth is likely to pick up from FY26 onwards. Further benefit from various levers like, slurry pipeline, and increased pellet volume of 12mtpa along with better product mix to augur well in earnings gradually from FY26 onwards. Increase in capex project cost to Rs310bn will increase net debt position to certain extent but cap of 1.5x Net Debt/EBITDA is likely to sustain. We value stock at 5.5x average FY25E/FY26E EV/EBITDA and arrive at target price of Rs662. Downgrade to ADD rating.

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331